Firstly, the very good news. Colorpak is nearing the end of its rationalisation program following its 2011 acquisition of Carter Holt Harvey.
Managing director, Alex Commins, stated, "The plant rationalisation activities will be completed in this current quarter which will see the end of inefficiencies as we double the capacity of our Braeside manufacturing plant. We expect $3 million per annum of savings to start flowing from the rationalisation activities in the second half of the year."
The rationalisation, he stressed, did impact on the half-yearly results. Excluding Victorian restructure costs, reported NPAT was $1.2milion.
Highlights are:
First six month underlying results summary (excludes impacts of the Vic. restructure costs):
• Normalised NPAT of $2.7m ($4.7m previous comparable period – pcp);
• EBITDA of $7.4m and EBITDA margin down from 11.5% to 8.9%;
• Debt (net of cash at bank) up from $32.995m to $35.288m;
• Earnings per share at 3.25 cents; and
• Interim dividend steady at 1.75 cents fully franked, payable1 April, 2014.
First six month operational highlights:
• Mt Waverley plant relocation 90% complete – project completion March 2014.
• Digital press commissioned in NSW operations December 2013.
• Villawood lease (NSW) surrendered to Landlord removing one of the last CHH legacy over-market lease positions.
Outlook is:
Upgrading: The full year net CAPEX expenditure of around $6m is to be directed towards emerging world-class technology including: HP digital press (commissioned in December 2013); productivity boosting Roland 700 6 colour press (commissioning February 2014); additional paper cup forming machine (installation scheduled for March/April 2014) and new Esko machine to double capacity in flexographic plate-making out of Brandpack.
Return to profitability: FY14 underlying profit is expected to be in line with prior year (excludes onerous contract release in FY13).
Impact of restructuring finite: Headline results will be impacted by $2.4m of one-off restructuring costs (1 year payback);
Cost savings kick in: $3million p.a. of cost savings to flow from the rationalisation, positively impacting second half year.
Post rationalisation growth: Expectations are to return to margin improvement, strong free cash flow and further debt reduction. Competitive position against imports is expected to improve with lower $A and potential for improved economic outlook and consumer demand.
Commins told PKN he was confident that in FY15 the company will see the upside of improved efficiencies and its foray into digital printing, which will allow it to meet the growing demand for short run, fast turnaround products. Colorpak is the first and only participant in the folding carton sector with a true digital capability.
He said: "We will remain vigilant to new technologies that will underpin future productivity improvements."
PKN will publish more on Colorpak's results and Alex Commins' views on the industry in the March-April print issue.